Chase Disney Case
Chase-Disney Hong Kong Syndication
Q1. How should Chase have bid in the first round competition to lead the HK$3.3 billion Disneyland financing?
Why Chase initially intended to bid-to-lose?
1. The syndication term is long-term, 25 years tenor which banks did not like, and not as per the norm of the region’s syndications’ usual tenor of 3-5 years.
2. Disney land Paris struggles were still fresh in memory, and raised the default risk concerns for sponsors
3. 3 lead arrangers condition by the sponsor would mean a bigger portion of the overall fee would be shared.
Why Chase changed their bidding approach from bid-to-lose, to bid-to-win?
1. Liquidity improved in the local market and therefore, spreads on syndicated loans were continuing to tighten, which mean the syndication will be more attractive to investors and lenders.
2. The senior government official underscored the government’s commitment to the project at an important conference, which brings comfort and positive point that distributors can use to ease the default risk concerns of investors.
Although Chase’s bid satisfied most of the sponsors’ conditions, to lead the bid with the intention to win, Chase should have bid:
1. Total syndication mount of 3.3 b
2. Loan term of 15 years
3. Flexibility on Other covenants
4. Price underwriting fee 100-150 bps
5. Market interest rate spread need 135-150 bps over HIBOR
Of course to make this offer more aggressive, Chase could have bid:
A commitment to underwrite the full amount upfront
Acceptance to team up with another 2 lead arrangers
Accepted a smaller underwriting fee, probably in the range of 90-130 bps
Required smaller interest rate spread over the HIBOR for the investors, probably HIBOR +125-135 bps
In comparison with Asia Containers Terminals syndication (not rated, private company), which provided HIBOR +170-195 bps and the Mass Transit Railway (government utility entity A/A3 rated), which provided HIBOR +81.2 bps, the exact mid-point rate between them
Q1. How should Chase have bid in the first round competition to lead the HK$3.3 billion Disneyland financing?
Why Chase initially intended to bid-to-lose?
1. The syndication term is long-term, 25 years tenor which banks did not like, and not as per the norm of the region’s syndications’ usual tenor of 3-5 years.
2. Disney land Paris struggles were still fresh in memory, and raised the default risk concerns for sponsors
3. 3 lead arrangers condition by the sponsor would mean a bigger portion of the overall fee would be shared.
Why Chase changed their bidding approach from bid-to-lose, to bid-to-win?
1. Liquidity improved in the local market and therefore, spreads on syndicated loans were continuing to tighten, which mean the syndication will be more attractive to investors and lenders.
2. The senior government official underscored the government’s commitment to the project at an important conference, which brings comfort and positive point that distributors can use to ease the default risk concerns of investors.
Although Chase’s bid satisfied most of the sponsors’ conditions, to lead the bid with the intention to win, Chase should have bid:
1. Total syndication mount of 3.3 b
2. Loan term of 15 years
3. Flexibility on Other covenants
4. Price underwriting fee 100-150 bps
5. Market interest rate spread need 135-150 bps over HIBOR
Of course to make this offer more aggressive, Chase could have bid:
A commitment to underwrite the full amount upfront
Acceptance to team up with another 2 lead arrangers
Accepted a smaller underwriting fee, probably in the range of 90-130 bps
Required smaller interest rate spread over the HIBOR for the investors, probably HIBOR +125-135 bps
In comparison with Asia Containers Terminals syndication (not rated, private company), which provided HIBOR +170-195 bps and the Mass Transit Railway (government utility entity A/A3 rated), which provided HIBOR +81.2 bps, the exact mid-point rate between them